By Shuli Ren

This is Morgan Stanley‘s transcript from their meeting with Sina’s CFO Herman Yu:

MS Q: How many users are linked between Sina and Taobao (or common accounts, in other words)?
Sina A: No official data yet, as the account connection initiative only kicked off two weeks ago; it is still too early to tell. Unofficial data suggest more than one-third of accounts overlap.

Sina: Weibo’s monetization is indeed faster than peers; consider that Weibo generated ~US$60mn revenues in its fourth year of operation. Weibo aims to build a mobile platform that services the SME market in China. SME in China is a ~US$10bn market, which is 5x bigger than the size of online portal advertising. [Barron's: Small-to-medium enterprises (SME) are Alibaba's core clients.]

The management is not optimistic about online advertising, where it generates most of its revenue:

The online ad market is not improving significantly, and macro datapoints still remain weak. Sina’s portal ad sales (ex-Weibo) dropped ~3% YoY in 1Q and 2Q. It expects a larger degree of decline in 3Q due to the soft macro environment and high base from last year (Olympics).

Nor is it optimistic about the portal business:

The overall portal industry is maturing, yet Sina sees opportunity by going local to target regional advertisers. For instance, China Mobile has separate operations in 31 provinces, and each has its own advertising budget. To date, Sina has set up 18 local websites to offer localized content. Mobile traffic has been growing, but is difficult to monetize due to the lack of a mobile landing page – which is one of the major reasons why Sina has been pushing its enterprise accounts on Weibo. There are 350,000 enterprise accounts on Weibo to date.

Or user-generated online video:

Sina does not want to get into the long-form online video business (e.g. Youku (YOKU) / iQiyi (BIDU)), as it is very difficult to make money. The best content is still on TV. as it is difficult to get big budget allocation from advertisers if content is unpredictable.

So Sina’s only bright spot is social e-commerce on the Weibo platform.

Weibo-related expenses will be controlled this year. The management expects flat expenses in the third and fourth quarter, to the tune of $200 million in 2013.

I have been a skeptic, but I want to present both sides of the coin. While Morgan Stanley has a Hold on Sina, J.P. Morgan is optimstic and has a Buy rating with $97 price target. Here is J.P. Morgan justifying their valuation in their August 31 initiation report:

We expect Weibo monetization to quickly improve Sina’s profitability over the next 12 months. We expect Weibo quarterly net profit to turn positive in 2H13, while the full-year 2013 net loss narrows to US$10m from US$95m in 2012. We expect increasing Weibo monetization to drive Sina’s OM from -2% in 2012 to 10% in 2013 and 18% in 2014.

J.P. Morgan values Weibo at $4.8 billion, based on their estimated $51 million 2014 net profit and annual growth rate of 107% between 2014 and 2016. This valuation gives Weibo 0.9 times PEG.

In J.P. Morgan’s sum-the-parts analysis, Weibo is worth $52.1 per share of the $95.8 price target, or 54% of the company value. Good execution in Weibo is paramount.

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There are 3 comments

SEPTEMBER 17, 2013 8:28 A.M.

Curious Investor wrote:

Just curious as to your skepticism. The company has $1.7 billion in cash and marked equity investments. That puts it at a $3.5 billion enterprise value for Weibo and the mature portal business which is generating $500 million in revenue. With the valuations being given to everything else in the space and this managements track record as well as a very solid partnership with Alibaba your skepticism doesn't seem warranted. You basically have to believe weibo is worth 5% of what the market is going to be giving Twitter to not like this stock.

SEPTEMBER 17, 2013 8:55 A.M.

eCommerce wrote:

Shuli Ren writes as if she holds the crystal ball.
Curious as to what her track record is.

SEPTEMBER 17, 2013 3:57 P.M.

Sun wrote:

Ren do not really understand china internet stocks. She do not really understand how popular Internet is. Even with so many Internet giants in China, every one will grow since the Internet market is so huge.

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Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. Barrons.com’s Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools. She studies multiple languages and photography.